OFT accuses construction firms of price rigging

More than 100 construction companies have been accused of conspiring to rig thousands of public sector contracts worth billions of pounds.

The Office Of Fair Trading today formally named 112 companies that it says colluded to inflate the cost of a wide range of contracts, including tenders for schools, universities and hospitals.

The list includes several publicly listed companies, including Balfour Beatty and Carillion. About 80 of the firms have already admitted participating in some form of bid-rigging, or have applied for leniency in return for assisting the OFT.

The Liberal Democrats said the scale of the allegations was "shocking" and that taxpayers had been ripped off by avaricious builders.

The four-year investigation - one of the OFT's biggest - centred on a practice known as cover pricing, in which construction firms secretly agreed the prices they would submit during a tender process. A firm that did not want to win the contract would submit a price that was much too high. In some cases, the eventual successful bidder would then reward them with a secret payment.

Cover pricing means that the tendering authority, which could be a local council or other customer, is given a false impression of the level of competition and could end up paying inflated prices.

According to the OFT, this bid rigging often involved false invoices.

"Cartel activity of the type alleged today harms the economy by distorting competition and keeping prices artificially high," said John Fingleton, the OFT chief executive.

The local government association, which represents councils in England, said companies who were found guilty of price-rigging should be made to repay their victims.

"It will come as a shock to residents that some construction companies have rigged bids for contracts at the taxpayers' cost. Local authorities strive to ensure that any new building which they pay for is delivered at the best value for the taxpayer, but it appears that some firms have failed to abide by the law," said Sir Simon Milton, who chairs the association.

"Greedy building barons" blamed

The OFT inquiry began in the east Midlands in 2004, but quickly spread to Yorkshire, Humberside and then across the UK. Its officials raided 57 companies during the course of the probe.

The statement of objections has now been sent to the 112 companies, who must respond within a few months. Under competition law, they could be fined up to 10% of their global turnover, although those that cooperate will receive a lower penalty.

Balfour Beatty said it was cooperating fully with the OFT. In return, it has been granted leniency over any future fine.

Sarah Teather, the Liberal Democrat shadow business secretary, said the OFT should "throw the book" at price fixers who have pushed up the cost of houses, schools and hospitals.

"The current select committee inquiry into the construction industry couldn't come at a better time - I look forward to these greedy building barons explaining themselves to MPs," she said.

The Construction Confederation, which represents many of the UK's building and civil engineering contractors, explained that one cause of cover pricing is that busy companies overbid for contracts in order to avoid winning the work but at the same time keeping their names on tender lists. The confederation said high bids were not illegal but acknowledged that if such bids were discussed with rival bidders - to confirm, for example, the bid was too high to win - then competition law had been broken.

It called on the OFT to deliver a "sensible and proportionate response" to the findings of its investigation.

It warned that in an industry where margins were traditionally about 2.5-3.5%, fines of up to 10% of turnover would threaten the viability of companies as would removing them from public tender lists. It argued such action could cut the number of contractors able to tender for future work - reducing competition.

The confederation's chief executive, Stephen Ratcliffe, said: "Let's be clear what we are dealing with in cover pricing - there was no intention to make a single penny at the taxpayers' expense, just an attempt by busy contractors not to win work without upsetting the client."

One report this morning claimed the alleged collusion meant local authorities overpaid by about 10%. However, the OFT declined to say what the impact had been.